As a trader, you may hear from some people that you shouldn’t pay much attention to fundamental analysis, as this only matters in the long term, and doesn’t tell you much about the short term moves that we’re seeking. This is true to a point, but fundamental and technical analysis aren’t mutually exclusive, and fundamentals are much more about where a stock’s price should be in the fullness of time, when everyone realizes what you have found out. What you need is to have an eye on the fundamentals of any stock you trade, or look it up on a business website that you trust, just to make sure that you aren’t going to get a sudden surprise from a basic problem with the company. Fundamentals help us understand the underlying trends on which we can project the technical side.
Our technical analysis is all about timing, and we need to have this on the sound footing of a valued stock. Much of the time, technical analysis can find an order to the way the price moves, or maybe a pattern. It’s no good taking a scientific approach, and expecting to find perfect solutions to the prediction of the future – it just doesn’t happen. But the fact is that we can identify and measure human responses to price fluctuations, and thus project, somewhat imperfectly, what we expect the price reaction to be.
Common Problem With Fundamentals
There’s been an ongoing debate for many years amongst traders on the value of fundamental analysis. There’s not much dispute that technical analysis is the main basis for traders to make their decisions, and Dow Jones himself had some comments to make at the end of the nineteenth century which included technical analysis. However, he also acknowledged fundamentals.
The prices that you see on a chart don’t tell you much about the underlying value of the security. What fundamental analysis does is tell you what the price should be. However, if you observe just a daily fluctuation in share prices, you can see that they move too quickly for any change in the basic value to be taking place. That is why, if we are looking for profits in a relatively short time, fundamental analysis will not give us the answers we need. That is the problem with fundamentals as far as traders are concerned.
However, many people say that you should pay a passing notice to the fundamentals, as with good fundamentals you know that the company is not, probably, going to do something unexpected, and catch you out.